Govt Has Played A ‘Game Over KO’ To Online Gaming Firms With 28% Tax

Look at the spectacle we have here. The government, in an Armageddon move that no one saw coming, has decided to slap a gigantic 28% GST on the “full deposit value” of online gaming. Forget about taking a bite, they have gone for the whole cake!

The announcement dropped like a thunderbolt from a clear sky on the evening of July 11, 2023. The online gaming companies, caught off guard, are now gasping for breath, like fish out of water. With a single stroke of the pen, it seems, the decision has turned a booming industry into an ICU patient.

The government may be picturing a windfall of Rs 15k-20k crore. But it should not forget the gamers may not be exactly thrilled about pouring their hard-earned money into the government's coffers. Who would want to sweat, toil and spend hours mastering a game only to end up paying the government?

It's like telling a child, "Hey kid, see that shiny piece of candy? You can have it, but only if you give me all your pocket money. Oh, and also your lunch and that toy in your hand too!" 

And let's not even get started on how the gaming stocks reacted. They plunged faster than a diver off a high board into a pool, reaching new lower circuits with every passing day. It's like watching a bungee jumper, except the cord's been cut. The investors of the start-ups must be chasing the promoters like Tom chases Jerry, trying to figure out what the heck is going on!

You Can’t Squeeze Water From Stone

While everyone was thinking that the game was about to level up, especially when Prime Minister Narendra Modi was cheerleading the gaming industry on multiple occasions by having championed the same and was expecting India to be the leader. A ray of hope came when the IT Rules 2023 were announced and there was hope for certainty and predictability. However, it seems the Finance Ministry and MeitY were playing hide-n-seek in silos, completely oblivious to each other’s moves. And here is the kicker — this so-called brilliant move would do the exact opposite of not supporting the vision of Start-up India, Digital India, Make in India or Atmanirbhar Bharat. 

The implication of the tax would be an astronomical and unprecedented 400%-500% increase in GST burden and the industry will have no choice but to pass this on to 400 million Indians. It’s like saying why go for a “Game Over” when you can trigger “Apocalypse” now. It must have sent a shock wave to most of the so-called MSMEs who would be severely impacted and may not be able to survive this disproportionate levy. Needless to mention that job loss in this sector is inevitable. The gaming industry ecosystem engages engineers, designers, researchers, content creators, game streamers, and most of them come from Tier 2 and Tier 5 cities. However, it seems with this decision they are heading towards an uncertain future. 

Similarly, the gamers who were fruitfully engaged in the game of skill would now be moving towards offshore gambling sites or black-market operators to avoid paying cost and reduction in the overall winning pool. It will also shoo away all foreign investors who had got some ray of hope with the IT Amendment Rules 2023 on gaming.

India currently has only 1% market share in the gaming industry, whereas the US and China have 23% and 26% market share, respectively, and while India was galloping with over 8bn downloads globally, disaster seems to have struck and it appears like someone has hit the “pause” button. It is seriously debatable and extremely doubtful that this decision will have any long-term gain to the exchequer. Sure, tax revenue is essential! But you can’t squeeze water from stone, or in this case coins from a broke gamer. While the gaming industry was expecting some power-ups in the form of reformative tax reforms, now it seems they would be bargaining for a mercy plea to impose 28% tax on the GGR/Platform Fee, failing which the survival of the online gaming industry would be doubtful. In other words, it would be more like a “Game-Over” situation scenario than a “high score” one.

And if the government decides to impose this tax retrospectively? Well, let's just say the queue for bankruptcy filings would be longer than the line for “notebandi scheme”! Not a pretty picture, is it?

I guess we'll all have to wait and see how this episode of "Government vs Gaming Industry" turns out. Hopefully, it's less like a horror movie and more like a comedy.

The author is an independent counsel and columnist.

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